China announces plans for deposit insurance in bank reform

BEIJING (AP) — China announced plans on Tuesday to roll out its first deposit insurance in May as part of steps to make the state-owned banking industry more flexible and competitive.

The central bank said it will insure deposits up to 500,000 yuan ($82,000). It said that would cover more than 99.6 percent of depositors but would exclude branches of foreign banks in China.

The measure would allow regulators to wind down a financially troubled bank without hurting depositors. Previously, all Chinese banks were assumed to be backstopped by the government to avoid losses to depositors.

Chinese regulators also have taken steps including easing controls on interest rates banks can pay in an effort to make the industry more market-oriented and efficient.

"The introduction of deposit insurance is an important step in interest rate liberalization," JP Morgan economist Haibin Zhu said in a report.

Economic planners have talked about instituting deposit insurance since the early 1990s and the central bank governor, Zhou Xiaochuan, said last month that it probably would be unveiled this year.

Regulators also have said they plan to allow banks set up with private capital for the first time since the 1949 communist revolution.